13 December 2005

The new EIA Energy Outlook foresees higher crude prices than its current estimate. Click to enlarge.

The US Energy Information Administration has released a preview of its upcoming Annual Energy Outlook 2006 (AEO2006), in which it outlines its reference case (not alternative scenarios) for energy supply and consumption for the next 25 years.

The volatility of the past year has caused the agency to make some significant changes to the reference case outlined in AEO2005, such as the projected price for crude oil, which the agency has increased about 64% from this year’s forecast.

In the current reference case, EIA assumes world oil supplies are tighter as the combined productive capacity of the members of the Organization of the Petroleum Exporting Countries (OPEC) does not increase as much as previously projected.

The agency projects that the price of imported light, low-sulfur crude will fall, in 2004 dollars, to about $47 per barrel in 2014, then rise to $54 per barrel in 2025 and $57 per barrel in 2030. The projected crude oil price in 2025 is about $21 per barrel higher than projected in last year’s reference case.

Higher world oil prices in AEO2006 will lead to some increases in domestic crude oil production and increase the demand for unconventional sources of transportation fuel, such as ethanol and biodiesel. The agency sees the stimulation of production for domestic coal-to-liquids production and, in some of the alternative scenarios with even higher oil prices, domestic gas-to-liquids and shale oil production.

The higher prices also slow the growth in petroleum demand. Delivered energy consumption in the transportation sector in the AEO2006 reference case is projected to total 37.3 quadrillion Btu in 2025, 2.7 quadrillion Btu lower than the AEO2005 projection.

Growth in petroleum consumption continues to grow, but at a slower rate than projected in the 2005 study. Transportation remains the dominant consumer. Click to enlarge.

The lower level of consumption reflects both slower growth in miles traveled and higher vehicle efficiency. Over the past 20 years, light-duty vehicle travel has grown by about 3 percent annually. In the AEO2006 reference case it is projected to grow at a rate of 1.8 percent per year through 2025 (as compared with 2.1 percent per year in AEO2005), reflecting demographic factors (for example, the leveling off of increases in the labor force participation rate for women) and higher energy prices.

The projected average fuel economy of new light-duty vehicles in 2025 is also higher in the AEO2006 reference case than was projected in AEO2005, primarily because the higher projected fuel prices in the AEO2006 forecast are expected to lead consumers to demand better fuel economy, slowing the growth in sales of new pickup trucks and sport utility vehicles.

Projected fuel economy. Click to enlarge.

The AEO2006 reference case does not include implementation of the proposed, but not yet final, increase in fuel economy standards based on vehicle footprint for light trucks—including pickups, sport utility vehicles, and minivans—for model years 2008 through 2011.

Much of the increase in new light-duty vehicle fuel economy in the AEO2006 reference case reflects greater penetration by hybrid and diesel vehicles. The agency estimates sales of full hybrid vehicles in 2025 to be 31% (340,000 vehicles) higher in the AEO2006 reference case, and diesel vehicle sales are 29% (290,000 vehicles) higher, than projected in the AEO2005 reference case.

Despite increases in full hybrid sales, each is to account for only 7% of new vehicle sales.

In spite of the higher projected sales of hybrid (1.5 million) and diesel (1.3 million) vehicles in 2025, each is expected to account for only 7% of new vehicle sales in the AEO2006 reference case, even though the projected hybrid sales are higher than current industry expectations.

The projected sales figures for hybrids do not include sales of micro hybrids which provide start-stop functionality but not tractive assistance from the electric motor.

The AEO2006 reference case includes minimal market penetration by hydrogen fuel cell vehicles, as a result of State mandates. Although significant research and development are being conducted through the FreedomCAR Program, a co-funded partnership between the Federal Government and private industry, those efforts are not expected to have a significant impact on the market for fuel cell vehicles before 2030.

Other highlights of the AEO2006 include:

Total energy demand is projected to increase from 99.7 to 133.9 quadrillion British thermal units (Btu) between 2004 and 2030, an average annual increase of 1.1 percent, in a scenario where the U.S. economy grows at an average annual rate of 3.0 percent. Thus, the energy intensity of the US continues to decline even while absolute consumption increases.

Similarly, carbon dioxide emissions from energy use are projected to increase at an average annual rate of 1.2 percent between 2004 and 2030. The carbon intensity of the economy, measured as energy-related carbon dioxide emissions per dollar of gross domestic product, declines at an average annual rate of 1.7 percent per year from 2004 through 2030.

As a result of both supply and demand changes, growth in petroleum imports is expected to be less than projected last year. Net petroleum imports, which met 58 percent of oil demand in 2004, are projected to meet 60 percent of demand in 2025, considerably less than the projected 68 percent projected for that same year in the AEO2005 reference case.

Higher oil and natural gas prices than in earlier AEOs lead to a projected increase in coal consumption from 1.1 billion short tons in 2004 to 1.8 billion short tons in 2030. Growth in coal consumption is projected to accelerate after 2020, as coal captures electricity market share from natural gas and as coal use for coal-to-liquids production grows.

Coal remains the primary fuel for electricity generation through 2030, with the coal share of total generation increasing from 50% in 2004 to 57% in 2030. Over this period, utilization at existing plants increases and large amounts of new coal-fired capacity are added, mainly after 2020. The natural gas share of total electricity generation is projected to increase from 18% in 2004 to 22% around 2020 before falling to 17% in 2030. A total of 174 gigawatts of new coal-fired generating capacity, including 19 gigawatts at coal-to-liquids plants, and 140 gigawatts of new natural gas capacity are projected to be constructed between 2004 and 2030.

Nuclear generating capacity is projected to increase from 100 gigawatts in 2004 to 109 gigawatts by 2030, with 3 gigawatts of upgrades at existing plants and 6 gigawatts of new plants stimulated by provisions in the Energy Policy Act of 2005 (EPACT2005). The new nuclear plants expected to be added in 2014 and beyond will be the first new nuclear plants ordered in the U.S. in over 30 years.

I visited the EIA website to find previous year's Outlooks, to compare them to reality. Links to previous Annual Energy Outlook reports (for example, the links on the page at http://www.eia.doe.gov/emeu/plugs/plaeo99.html) instead point to the current Outlook at http://www.eia.doe.gov/oiaf/forecasting.html No doubt this is a simple oversight which will soon be corrected...